Who’s really driving property prices?

Lenders have the power to decide whether a property transaction goes ahead or not.

Unless of course, you pay the property in cash and you don’t have to take out a mortgage.

But lenders can reject your home loan application even if you’re financially qualified to get a loan if the asset isn’t consistent with their “risk modelling” according to Wilson.

What this means is that they can decline your application if they think that you’re buying in a “risky” area based on their modelling.

The tricky part is, the banks’ definition of risk varies and is a closely guarded secret, just like their lending criteria.

“The banks aren’t lending in certain areas to mitigate their risks,” says Wilson. “But they also don’t reveal their methodology in terms of what they determine to be a positive or negative market.”

Blacklisted “risky” suburbs: a subtle market manipulation?

In October last year, NAB released its infamous blacklist of more than 600 suburbs and towns where it capped its lending to property buyers, citing growing risks in these markets.

Earlier in 2016, AMP released its own blacklist of 140 suburbs.

Shortly after, Macquarie Bank also issued its blacklist of 120 suburbs across the country.

But this differential lending practice goes all the way back to the GFC era (circa 2010) when major banks collectively abandoned lending to buyers of Gold Coast apartments citing growing risks for these assets.

While this move may not be the only catalyst for the Gold Coast property crash, it has certainly exacerbated the drop in unit prices, in some cases plunging by up to 50%.

Wilson points out that differential lending by the banks are rising once again and it’s a big concern.

“This is a big issue. If a market is undergoing a correction like Perth, and if lending isn’t allowed or restricted due to perceived risks, how is that market going to recover? What it means is that markets that are already positive like Sydney, become even more positive and negative markets become more negative.”

The implications of differential lending on the property market cannot be underestimated says Wilson.

Nila Sweeney is the managing editor of Property Market Insider which publishes independent, intelligent and authoritative property investment information to help investors and home buyers make smart property decisions. Over the past 10 years, Nila was the managing editor of Your Investment Property, Your Mortgage and Canadian Real Estate Wealth while actively investing in property herself. Visit: propertymarketinsider

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